Canadians pay billions of dollars in ‘excess’ bank fees: report

TORONTO – As the federal government pushes to reduce banking fees, a report from consulting firm North Economics estimates Canadians are overpaying billions of dollars a year.

The report from the Alberta-based firm compared the fees of the big five Canadian banks (RBC, TD, BMO, CIBC and Scotiabank) with those faced by consumers in the United Kingdom and Australia.

It shows that Canadians pay much more per month for bank accounts, as well as for non-sufficient funds fees, overdraft fees and ATM access at competing banks.

To get an idea of ​​how much more Canadians pay, North Economics managing director Alain de Bossart looked at how Canadian and British interest-free retail banks’ profits compare with their deposits. The measure excludes earnings based on interest on mortgages and other loans.

Using the retail banking profit-to-deposit ratio for 2022, it found that Canada’s five largest banks had $7.73 billion in “excess” revenue. The figure is equivalent to about $250 per Canadian.

“Canadian banks have done a very good job of extracting as many fees from people as possible,” de Bossart said.

He said he has wanted to delve deeper into the topic since he moved to Canada from the United Kingdom about seven years ago.

“The first thing that caught my attention was that you practically have to pay a monthly fee just to allow a bank to hold your daily deposits,” de Bossart said.

“In the UK, you can have multiple bank accounts at multiple banks and expect to pay no monthly fees for a bank account that allows you to do everything you would reasonably expect to do in a month.”

The Canadian Bankers Association said in a statement that Canada’s banks provide the tools Canadians and small businesses need to manage their finances.

“Our country’s competitive banking system offers good value, easy access and broad options for consumers and businesses,” said spokeswoman Maggie Cheung. “The banking industry understands the importance of financial well-being for all Canadians and that many Canadians are feeling additional pressure on their budgets.”

The report highlights that, in addition to major banks in the United Kingdom and Australia offering free accounts to all consumers, they also charge nothing or just a few dollars when a customer does not have sufficient funds. Canadian banks charge between $45 and $50 each time.

Finance Minister Chrystia Freeland has been pushing to improve low-cost banking options and reduce fees for insufficient funds, but has not yet done so, which De Bossart said prompted him to look into the issue.

The report also notes that Canadian banks typically charge $5 for overdraft protection, either monthly or per instance, while UK banks charge nothing (although UK banks do charge higher interest on the overdraft amount ).

Canadians also typically face multiple fees when using an ATM at a bank where they don’t have an account, which can range from $1 to $9, while consumers in Australia and the United Kingdom are not charged at all. said.

Cheung said the banking sector “understands the importance of financial well-being for all Canadians and that many Canadians are feeling additional pressure on their budgets.”

He noted that, according to recent data from the Bank of Canada, about 57 per cent of Canadians either don’t pay for a bank account or have the monthly fee waived or refunded.

No-cost accounts are available for groups such as youth, students and seniors, but the North Economics report notes that not all Canadians are offered a free option.

It also notes that while customers can avoid paying fees by maintaining a high enough balance in their account, that amount can range from $3,000 to $6,000. That means the balloon payment can’t earn more through a different account with better interest rates.

De Bossart said the lower fees in the U.K. and Australia are partly because regulators have a stronger mandate to encourage competition, including through things like making it easier to switch accounts.

“The regulatory mandate has really included a competition mandate, so the idea of ​​promoting and improving competitive behaviors in the marketplace, whereas in Canada, that’s not really something that’s being considered.”

This report by The Canadian Press was first published March 7, 2024.

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